Indie B-D loses – but still wins – arbitration ruling on DBSI deals

An independent broker-dealer facing staggering liabilities from failed real estate investments got a small reprieve when a securities arbitration panel awarded a client $20,000 in damages — rather than $445,000. The client, Dennis Soderstrum, in May 2010 filed a complaint with the Financial Industry Regulatory Authority Inc. against the broker-dealer, Berthel Fisher & Co. Financial Services Inc., and a representative, Ronald Helland. According to last week's award, the causes of action for the complaint were the firm's failure to do proper due diligence on two deals sponsored by DBSI Inc. and that the investments were unsuitable. DBSI, a former leading sponsor of tenant-in-common exchanges, filed for bankruptcy protection in 2008. Almost 100 broker-dealers sold DBSI deals. Berthel Fisher was a leading seller of the TICs from DBSI. At the end of last year, claimants were seeking $31.9 million in damages from the firm due to failed DBSI deals, according to a Berthel Fisher filing this year with the Securities and Exchange Commission. As is typical with arbitrations filed by investors with Finra, the three arbitrators gave no reasoning or explanation for their decision to award Mr. Soderstrum $20,000. The firm, not the broker, will pay the award. But in a statement, the firm's chief executive, Tom Berthel, focused on the firm's due diligence regarding DBSI sales. “This is the first time any panel or independent third party has reached a determination as to Berthel Fisher's due-diligence efforts on any product sponsored by DBSI,” Mr. Berthel said. “We are disappointed with how our client's real estate investments fared. We are pleased, however, that after hearing about the due-diligence efforts we made in connection with these DBSI products, the arbitration panel found in our favor.” Calls to Mr. Soderstrum's attorney were not immediately returned. Despite the small award, which the arbitration panel approved Friday, Berthel Fisher is not out of the woods yet over its sale of DBSI TICs. The firm has filed a lawsuit in federal court in Iowa against its insurance carrier, Arch Specialty Insurance Co., over the coverage for the nearly $32 million in claims. That dispute stems from Arch Specialty Insurance's assertion that coverage for the entire group of claims against Berthel is $1 million. The B-D claims that it is entitled to $7 million in coverage.